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Wednesday, July 17, 2024

3.2% decline in the value of Rupees to dollar

News Analysis |

After the stability of two and a half years, Pakistani rupee on Wednesday suffered a major depreciation of 3.2%, against the US Dollar in the early hours of interbank. Surprisingly this decline coincided with a day when Maryam Nawaz made her maiden JIT appearance in the Panama Case.

With this fresh stoop in the value of rupee, the new-recorded rates for the US Dollar have reached to Rs.108.25, which is Rs. 3.2 higher than its previous purchasing rate of Rs. 104.90.

Who is to be blamed for this devaluation?

While some have blamed an ongoing wave of political uncertainty, Finance Minister Ishaq Dar has been vocal in identifying that this devaluation is a result of the deliberate attempt made by few individual and entities who want to exploit this negative political environment.

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Dar, who has been known for his strong advocacy of keeping rupee – dollar stability came in conflict with the State Bank of Pakistan when as opposed to Dar’s methodology, it termed this development as the “ adjusting of the market”.

As opposed to Dar’s panicked approach, State Bank of Pakistan holds a rather optimistic outlook since this depreciation according to them is fundamental in balancing the current account deficit, owing to an imbalance in the imports and exports of the country.

If ascertained the reasons, behind the existence of this wide variation in philosophies of the State Bank of Pakistan and Finance Minister, it can be concluded that Dar’s approach is more lenient towards the importers.

Exporters, on the other hand, have had direct benefit after Wednesday’s decline since the depreciation of the rupee in the market rendered their goods and services more competitive in international market.

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Brighten up business prospects for the exporters; this may have brought problems for the importers who would be scratching their head for this rise in their import bills.

Previously State Bank has been making artificial attempts of maintaining this stability by throwing dollars from its own foreign reserves and supporting the private importers.

This has been bliss in particular for the exporters who have long been demanding the government to depreciate the exchange rate when other countries too are following the same tactics.

The IMF has particularly negated this approach too, who have made repeated calls for the finance minister to let the rupee gain its real value.

The depreciated currency would make the commodities cheaper and competitive than other international producers, this, in turn, will help the exporters to grab more business.

The gaining of real rupee value will help the country to expand the utilization of its production capabilities to its fullest bringing an increase in the GDP growth.  The depreciated currency would make the commodities cheaper and competitive than other international producers, this, in turn, will help the exporters to grab more business.

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Exporters gaining more business will steer the wheels of production, bringing in more job opportunities for the unemployed, also more foreign cash inflows mean there would be lesser dependence on the inflows coming in the form of loans and aid.

However, if the situation isn’t reversed within few days and continues for a longer period of time, the economy is feared hampered with the extra burden of paying back the higher amount of loans.

This too is a bleak situation for the economy, however, the depreciation too may seem a riskier situation in the short run, but in the long run, a more loan free development can be predicted.